Businessmen created large organizations through two methods of consolidation. Horizontal integration is the combining of a number of firms, that are engaged in the same enterprise, into a single corporation, creating a monopoly of the market. Vertical integration is the taking over of all the different businesses on which a company relied for its primary function. A single company owns and controls the processes of raw materials to manufacture to the sale of the finished product. Supplies become more reliable, and efficiency improves while the quality of the product is controlled at all stages.
Andrew Carnegie
Andrew Carnegie pioneered vertical integration in the case of Carnegie Steel, taking control of all aspects of the product. The consolidation of different railroad lines into one company is an example of horizontal integration. In another effort to consolidate, railroads began to make pool arrangements, which are informal agreements between companies to stabilize rates and divide markets; however, they collapsed. Due to this failure, "trusts" were created by Standard Oil and perfected by JP Morgan. A trust holds the assets of a company, with the trustees exercising control of many companies often reducing competition.
John D. Rockefeller
An example of a company that used both methods wasthe John D Rockefeller's Standard Oil, which controlled access to 90 percent of the refined oil in the United States. Horizontal: When Rockefeller started a refining company in Cleveland, he bought out other competing ref ineries. Within a few years of forming the Standard Oil Company (1870), it acquired the majority of refineries in Cleveland, including ones in four different cities. Vertically: Rockefeller built his own barrel factories, warehouses, and pipelines, and also owned freight cars and developed its own marketing organization.
Industrialists saw consolidation to cope with cutthroat competition, which they believed would cause instability. Many capitalists believed although did not say it, that a successful enterprise was one that could eliminate its competitors.
A cartoon showing Standard Oil as an octopus taking control of several things.
Horizontal and Vertical Integration
Businessmen created large organizations through two methods of consolidation. Horizontal integration is the combining of a number of firms, that are engaged in the same enterprise, into a single corporation, creating a monopoly of the market. Vertical integration is the taking over of all the different businesses on which a company relied for its primary function. A single company owns and controls the processes of raw materials to manufacture to the sale of the finished product. Supplies become more reliable, and efficiency improves while the quality of the product is controlled at all stages.
Andrew Carnegie pioneered vertical integration in the case of Carnegie Steel, taking control of all aspects of the product.
The consolidation of different railroad lines into one company is an example of horizontal integration. In another effort to consolidate, railroads began to make pool arrangements, which are informal agreements between companies to stabilize rates and divide markets; however, they collapsed. Due to this failure, "trusts" were created by Standard Oil and perfected by JP Morgan. A trust holds the assets of a company, with the trustees exercising control of many companies often reducing competition.
An example of a company that used both methods wasthe John D Rockefeller's Standard Oil, which controlled access to 90 percent of the refined oil in the United States.
Horizontal: When Rockefeller started a refining company in Cleveland, he bought out other competing ref
ineries. Within a few years of forming the Standard Oil Company (1870), it acquired the majority of refineries in Cleveland, including ones in four different cities.
Vertically: Rockefeller built his own barrel factories, warehouses, and pipelines, and also owned freight cars and developed its own marketing organization.
Industrialists saw consolidation to cope with cutthroat competition, which they believed would cause instability. Many capitalists believed although did not say it, that a successful enterprise was one that could eliminate its competitors.